Mumbai, March 11 IndusInd Bank shares were locked in a 20 per cent lower circuit on Tuesday as the lender’s internal review projected an adverse impact of approximately 2.35 per cent on its net worth (as of December 2024).
The steep fall erased around Rs 14,000 crore in the bank’s market value. The stock hit a 52-week low of Rs 720.35, to go below the lower band on the NSE.
The bank’s net worth is expected to decline by nearly Rs 2,100 crore after accounting discrepancies of 2.35 per cent of its net worth were found in its derivatives portfolio during an internal review.
The Hinduja-promoted lender plans to absorb this loss in its Q4 earnings or the first quarter of the next fiscal year (FY26).
The internal review findings have sparked a string of target price cuts from several brokerages for the bank's stock amid fresh turmoil, days after the Reserve Bank of India allowed only a one-year extension to Chief Executive Officer, Sumant Kathpalia.
The bank has appointed an external agency to independently review and validate its internal findings on the derivatives portfolio, as per the Reserve Bank of India's September 2023 guidelines on bond investment classification and valuation.
IndusInd Bank will face a "litmus test" from the succession viewpoint and the board is likely to evaluate both external as well as internal candidates, Citi said. Recent developments have raised the risk perception and impact disclosed borrowings cost too, it added.
“We downgrade IIB to ‘HOLD’ from ‘BUY’ as we cut multiple to 1.0x from 1.4x driven by uncertainties relating to earnings quality and future leadership. Woes continue for IIB since an irregularity was unearthed in derivative accounting,” said Gaurav Jani from PL Capital- Prabhudas Lilladher.
This discrepancy spanned across a 5-7 year period till March 31 2024, however, due to an RBI directive, there are no irregularities with effect from Apr 1 2024.
“In our view, this episode had a bearing on RBI’s decision to extend MD and CEO’s tenure only for 1 year. Valuation is 0.9x on FY27 ABV and we trim target price to Rs 1,000 from Rs 1,400,” said Jani.
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